With a clear lack of certainty in the stock market, the need for defensive investing has risen. For investors with a short investment window, such as soon-to-be retirees, it’s vital to protect their portfolios during these times.
Of course, over a long investment horizon, defensive investing tends to under-perform other methods, as when going with defensive stocks you often sacrifice growth or yield for stability.
However, that stability can be well worth it during tough economic climates. While long-term investors can stand to stomach near-term turbulence, short-term investors can’t afford it.
Today, we’ll look at one TSX stock perfect for stable, defensive investing.
Fortis has an iron-clad track record for maintaining and growing its dividend yield. With a beta of 0.15, it also tends to be very insulated against the wild swings of the market.
These attributes help make Fortis a great pick for defensive investing. It achieves these marks of stability through the way it generates cash flow.
Specifically, nearly all of Fortis’ distribution channels are through regulated contracts, which means that Fortis provides utilities in a very stable and predictable manner.
As such, Fortis generally doesn’t have too many surprises in store for investors — both good and bad ones. So, investors tend to know what they’re getting with Fortis.
Overall, Fortis runs a healthy if unexciting business that operates with very few unknown variables.
Defensive investing trade-off
As mentioned, Fortis is a defensive investing powerhouse on the TSX. However, investors have to pay a price to latch on to Fortis’ stability.
While nearly all bank, energy, and even telecom blue-chip stocks on the TSX are sporting yields north of 5-6%, Fortis is yielding 3.57%.
This is part of the reason that over a very long investment horizon, Fortis will likely lag behind less defensive blue-chip stocks. The compounding power of the much larger yields will far outweigh short-term price hiccups in the long run.
So, long-term investors will likely want to look elsewhere if they have extra cash in hand to invest.
However, Fortis offers investors that vital short-term stability and predictability. Even during these tough times, Fortis’ earnings aren’t really in question.
For soon-to-be retirees, or someone saving for a very short-term goal, this makes Fortis an attractive investing option. It offers a much higher yield than any fixed income alternative while not carrying much higher risk.
Defensive investing strategy
When it comes to defensive investing, it’s vital to pick stable and reliable stocks. Fortis has a reputation for being one of the most stable stocks around, with a great track record of solid earnings and dividend growth.
Investors can of course chase higher yields elsewhere, but at additional risk. Fortis is one of the best choices for low-risk, short-term investing.
If you’re looking to protect your portfolio against market pressures, keep an eye on Fortis as a potential solution.
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Fool contributor Jared Seguin has no position in any of the stocks mentioned.